Self-Custodial AMM

Definition ∞ A self-custodial Automated Market Maker, or AMM, is a decentralized exchange protocol that allows users to trade digital assets directly from their own wallets without relinquishing control of their funds to a third party. Participants retain full ownership of their assets throughout the trading process, interacting with smart contracts that automate liquidity provision and price discovery. This design minimizes counterparty risk and enhances user sovereignty. It represents a core principle of decentralized finance.
Context ∞ Self-custodial AMMs are central to the decentralized finance (DeFi) ecosystem, enabling peer-to-peer trading and liquidity provision without intermediaries. Discussions often highlight their advantages in terms of censorship resistance and transparency, contrasting them with centralized exchanges. A key debate involves balancing the security benefits of self-custody with the user experience challenges, such as managing private keys and understanding complex smart contract interactions.